Someone has attempted to put their arms around just-exactly-how-much the ongoing bailout for Fannie Mae and Freddie Mac could cost the US taxpayers...
According to Bloomberg, the Government Sponsored Enterprises of Fannie Mae and Freddie Mac have already drawn on an "unlimited" line of credit from the US Government to the tune of $145 billion and with the projected losses, the total cost of the bailout could approach $1 Trillion.
The Congressional Budget Office calculated in August 2009 that the companies would need $389 billion in federal subsidies through 2019, based on assumptions about delinquency rates of loans in their securities pools. The White House’s Office of Management and Budget estimated in February that aid could total as little as $160 billion if the economy strengthens.
If housing prices drop further, the companies may need more. Barclays Capital Inc. analysts put the price tag as high as $500 billion in a December report on mortgage-backed securities, assuming home prices decline another 20 percent and default rates triple.
Sean Egan, president of Egan-Jones Ratings Co. in Haverford, Pennsylvania, said that a 20 percent loss on the companies’ loans and guarantees, along the lines of other large market players such as Countrywide Financial Corp., now owned by Bank of America Corp., could cause even more damage.
“One trillion dollars is a reasonable worst-case scenario for the companies,” said Egan, whose firm warned customers away from municipal bond insurers in 2002 and downgraded Enron Corp. a month before its 2001 collapse.
Between Fannie Mae and Freddie Mac they own a little over 50% of the nations almost $11 trillion in residential mortgages and with millions of bad loans that were issued during the housing bubble still on the books and not yet written down, people are just trying to figure out how bad the worst case scenario could be. But with unemployment remaining at high levels and interest rates projected to rise over the next few years - it could very well end up as bad as the projections are predicting.
But I hope not.